Fitch Rates Allstate's $650MM Preferred Stock 'BB+'

CHICAGO--()--Fitch Ratings has assigned a 'BB+' rating to Allstate's issuance of preferred stock.

Fitch currently rates Allstate's IDRs 'A-/ F1' with a Stable Outlook.

KEY RATING DRIVERS

Allstate's planned issuance of $650 million of 6.625% fixed rate perpetual non-cumulative preferred stock (an amount excluding a possible additional 15% overallotment) is for general corporate purposes.

Based on its rating criteria, Fitch has assigned 100% equity credit to the preferred stock and has added an additional notch to the rating to reflect more aggressive loss absorption features.

The security has no stated maturity. Dividends are non-cumulative and Allstate has the option to defer them at their discretion. In addition, the security has a mandatory deferral feature that requires deferral if certain capital ratios or operating results are breached. Fitch believes the mandatory deferral could be triggered before there is significant stress in the organization. Therefore, it deems the features as having more aggressive loss absorption.

Debt-to-total capital remained appropriate for the current rating category at 23.4% at Dec. 31, 2013 (22.8% proforma for the preferred stock issue), relative to Fitch's median guideline of 28%. This ratio was calculated excluding unrealized investment gains on fixed income securities from shareholders' equity.

Fitch calculated the run-rate fixed charge coverage to be between 9-11 times based on $3.8 billion in GAAP EBIT for 2013. GAAP EBIT was divided by annual interest expense on the debt and pre-tax preferred dividends, totaling approximately $440 million (including dividends from the new stock issue). Fitch's median guideline for the rating category is 7.0x.

RATING SENSITIVITIES

Key rating triggers for Allstate that could lead to an upgrade include:

--Growth in surplus leading to an improved capitalization profile measured by operating leverage approaching 1.1x and a score of 'Strong' or better on Fitch's proprietary capital model, Prism;
--Reduced volatility in earnings from catastrophe losses and better operating results consistent with companies in the 'AA' rating category;
--Standalone ratings for Allstate's life subsidiaries could increase if their consolidated statutory Risky Assets/TAC ratio falls below 100% and they are able to sustain a GAAP based Return on Assets ratio over 80 basis points.

Key rating triggers for Allstate that could lead to a downgrade include:

--A prolonged decline in underwriting profitability that is inconsistent with industry averages or is driven by an effort to grow market share during soft pricing conditions;
--Substantial adverse reserve development that is inconsistent with industry trends;
--Significant deterioration in capital strength as measured by Fitch's capital model, NAIC risk-based capital and traditional operating leverage. Specifically, if operating leverage, excluding the surplus of the life insurance operations, approached 2.5x it would place downward pressure on ratings;
--Significant increases in financial leverage ratio to greater than 30%;
--Unexpected and adverse surrender activity on liabilities in the life insurance operations;
--Liquid assets at the holding company less than one year's interest expense and common dividends.

Fitch has assigned the following rating:
--6.625% Series E preferred stock 'BB+'.

Additional information is available at www.fitchratings.com.

Applicable Criteria & Related Research:
--'Insurance Rating Methodology' (November 2013).

Applicable Criteria and Related Research:
Insurance Rating Methodology
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=723072

Additional Disclosure
Solicitation Status
http://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=821951
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Contacts

Fitch Ratings
Primary Analyst:
Douglas M. Pawlowski,CFA (Allstate Corp. & Allstate Insurance), +1-312-368-2054
Senior Director
Fitch Ratings, Inc., 70 West Madison Street, Chicago, IL 60602
or
Secondary Analyst:
Bruce E. Cox (Allstate Life Insurance Co.), +1-312-606-2316
Director
Fitch Ratings, Inc.
70 West Madison Street
Chicago, IL 60602
or
Committee Chairperson:
Julie A. Burke, CFA, +1-312-368-3158
Managing Director
or
Media Relations:
Brian Bertsch, +1-212-908-0549
brian.bertsch@fitchratings.com

Sharing

Contacts

Fitch Ratings
Primary Analyst:
Douglas M. Pawlowski,CFA (Allstate Corp. & Allstate Insurance), +1-312-368-2054
Senior Director
Fitch Ratings, Inc., 70 West Madison Street, Chicago, IL 60602
or
Secondary Analyst:
Bruce E. Cox (Allstate Life Insurance Co.), +1-312-606-2316
Director
Fitch Ratings, Inc.
70 West Madison Street
Chicago, IL 60602
or
Committee Chairperson:
Julie A. Burke, CFA, +1-312-368-3158
Managing Director
or
Media Relations:
Brian Bertsch, +1-212-908-0549
brian.bertsch@fitchratings.com